SCOTLAND Yard has narrowed its investigation into cash for peerages allegations to £14 million in secret loans from a dozen rich benefactors to the Labour Party.

The Times has learnt that the eight-strong police team has requisitioned 1,000 papers relating to the transactions that helped to bankroll the Labour election campaign. The police will hand over an initial report on their inquiry to the Crown Prosecution Service in the autumn, raising the possibility that charges may be brought.

Documents have been sent to the police from Labour lenders and the Labour Party. A number of other unconnected sources, including the Inland Revenue and former employees of the Labour Party, have also offered documentation.

Whitehall sources confirmed that Labour was now at the centre of the investigation. “It is Labour’s loans that seem to be at the heart of the issue,” one senior source said. “There are a number of documents that have given the investigation an added significance. Everybody knows that the Labour Party must be terrified. But now the police have the evidence in its hands, it might be best to remain calm, and help them as much as possible.”

The seriousness of the inquiry was underlined yesterday when the influential Commons Public Administration Committee surprisingly announced that it would suspend its own separate hearings into whether peerages could be bought.

Tony Wright, the committee chairman, said: “It is clear that some of the witnesses that we have identified are very much in the frame as far as the police are concerned. These are big, important public issues, but I want to be responsible and above all I don’t want it to be said at any point that we compromised police action. But we are not giving them a blank cheque. In July we will review this decision.”

Lord Levy, Tony Blair’s personal fundraiser, had been scheduled to give evidence in a televised hearing before the committee next week. He will now not be questioned by the committee until the police have interviewed him.

The report to the CPS could coincide with the party conference season, but a Scotland Yard spokesman said that this did not suggest that the investigation would be complete by then. John Yates, the deputy assistant police commissioner leading the inquiry, said last night that significant progress had already been made and detectives had “already identified a number of issues that merit further investigation”.

The police are examining whether the loans from a dozen businessmen, including Sir David Garrard, a retired property developer who loaned £2.3 million, were genuine commercial transactions. Sir David is a close friend of Lord Levy, who persuaded many of the benefactors to make secret loans rather than donations.

If there were to be a prosecution it is unlikely that any of the dozen donors questioned by police would face charges because they would have been following instructions from the Labour Party. This would put any blame on to the party.

Any political party that does not declare a loan that is not genuinely commercial is in breach of the Political Parties, Election and Referendum Act, which became law in 2000. It is an offence punishable by up to one year in prison to knowingly give false information to the Electoral Commission about donations to political parties.

Four nominees for a peerage, who had made loans, were blocked this year by the House of Lords Appointments Commission. Lord Stevenson of Coddenham, the commission chairman, said that it was the first time they had ever blocked party political peerages.

Sir Gus O’Donnell, the Cabinet Secretary, giving evidence to the Public Administration Committee, said yesterday said that the committee should delay its inquiry until the police had concluded their criminal investigation. He said: “I think there’s a real issue when an investigation is ongoing that nobody says anything that might impact on criminal cases.”

THE INQUIRIES

The Public Administration Committee was the first to announce an inquiry after four nominees for peerages were blocked by the House of Lords Appointments Commission. The committee is examining whether there is any link between donations and the award of peerages

The Constitutional Affairs Committee is holding a separate inquiry into party funding and whether there should be an extension of state funding

The Electoral Commission began a review yesterday into party financing

Scotland Yard is conducting the first investigation for 70 years into whether there has been a breach of the Honours (Prevention of Abuses) Act 1925

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